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A Long Term Compelling Investment Story For United States Oil Fund ETF

Jun. 01, 2020 10:53 AM ETUnited States Oil Fund, LP ETF (USO)38 Comments
BiotechScout profile picture


  • Increase demand in oil consumption as states reopening and airline activity increases will lead to a decrease in current oil inventories.
  • Oil future contracts are stabilizing and looking to rebound from the bottom floor share price back in March 2020.
  • Longer contracts and pressure push from regulators limit potential high volatility from shorts and traders alike in the future.
  • The perfect storm of Saudi & Russia price war, COVID-19, and short-sellers blitzkrieg attack have passed leading to possible long term growth in the share price.

United States Oil Fund (NYSEARCA:USO) ETF has a wild ride and now in a recovery mode. Reopening of states across the US and the world is leading to a higher consumption rate of oil. Airlines and cars are already hitting the road with cruise ships soon to follow in a few months.

Geopolitical factors have provided a much-needed jump start as on April 9, 2020, Saudi Arabia and Russia agreed to cut 10 million BPD and extend further cuts in June 2020.

Saudi Arabia, UAE, Kuwait on May 12, 2020, also wants to voluntarily reduce an additional 1.2 million barrels per day.

The U.S is not part of the cuts and agreement, but major producers are shutting wells across North America. Bankruptcies are already occurring with a few small to medium companies. And Permian hot spots are all slowing down with rig count decreasing with 57% decline to now below 270 from 624 rigs in March 2020. As WTI oil price goes up steadily, North America oil producers would not be able to get the loans from the banks (high risk) and restart their well.

In regards to the oil storage sector, tankers per day went from $25k in February 2020 to now $200k-$300k in April 2020 so companies want to offload the supply even if it is at break-even or a loss. Further increasing consumptions and release of supply.

Current oil inventories have improved drastically and surplus supply has gone down the past few weeks. See chart below with source link -https://www.investing.com/economic-calendar/eia-crude-oil-inventories-75

Release Date Time Actual Forecast Previous
May 28, 2020 11:00 7.928M -1.944M -4.983M
May 20, 2020 10:30 -4.983M 1.151M -0.745M
May 13, 2020 10:30 -0.745M 4.147M 4.590M
May 06, 2020 10:30 4.590M 7.759M 8.991M
Apr 29, 2020 10:30 8.991M 10.619M 15.022M

This article was written by

BiotechScout profile picture
A hobby investor turned full-time investor with over 20 years of experience in trading. My trading experience consists of trading in markets such as technology, commodity, options, energy, biotechs, and pharmaceutical sectors. As an investor, I use a wide range of tools such as utilizing basic financial trends, chart trends, short activities, real-life analysis and a mix of due diligence in any stock I review or analyze. I'm currently based in sunny California in which I enjoy being a successful full-time investor and trader in various sectors.Disclaimer: Articles and/or comments represent the opinion of the author, who is not a licensed financial advisor. Articles are intended for informational and educational purposes only, and should not be construed as investment advice to any particular individual. Readers should perform their own due diligence before making any investment decisions.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (38)

08 Jun. 2020
I have been in DBO and it's done fine over the last month. Wondering if it's time now to go over to USO as the n xt swing.
BiotechScout profile picture
For USO there has been a decent run and it is a great opportunity to obtain more growth. However, the future gain isn't as expected to be high and if we all had a crystal ball we would be a millionaire. Long term for USO so don't expect any explosive action anytime soon.
I need a short article quick. Based on OPEC and the Saudis this weekend, what do I do in pre-market trading tonight/tomorrow morning?

Is this a chance to get a significant percent increase on USO? Please someone with some knowledge, share it with me.
BiotechScout profile picture
My same thesis and article apply above, the recent OPEC cut of production further confirms my bullish views on USO. Also with the rigs continuing to drop in the Permian and Basin regions, U.S. companies cannot get back online as banks no longer will lend to money to them. It only increases the demand and constricts the supply.
Not sure how many of you noticed this but in addition to extending the production cuts by 1 month Saudi, Russia and allies are trying move oil into backwardation, Which would be a huge positive for USO. www.bloomberg.com/... You'll need Bloomberg news subscription to read the entire article.
correct link to bloomberg article
opec tries novel strategy to turn oil price curve upside down
Thank you, interesting reading
OptionLover profile picture
The author forgot the facts that Canadian banks forbid USO to buy on margin.
Canadian banks did you say @OptionLover ?
OptionLover profile picture
It does not fit long term, and it us under investigation from FTC, CME as well as under many law suits as investors list 95% last year.
BiotechScout profile picture
Thank you for pointing that out to @OptionLover. It is a welcome change for the new broker. It only strengthens this play in my opinion.
That's what I was thinking.
RySci profile picture
USO is not fit to hold long term. Especially while the futures curve is still in contango. Buy high quality E&Ps, not this garbage which is currently facing probes by the SEC on risk disclosure to investors.
BiotechScout profile picture
I agree to some extent, you can certainly invest in CoP, XOM or CoP over the world. However, these companies usually have a higher debt ratio and hamper their growth potential even in a recovery. USO is focused mainly on Oil Price and keeps it simple with a greater potential for growth.
Its the contango that kills @BiotechScout .
BiotechScout profile picture
Agree! Contango will always bring it down, but the potential long term growth and possibly swing trades will make this investment profitable.
All aboard!
BiotechScout profile picture
Agreed, besides the restrictions on the fund in future contracts. Positive indicators are going off for a decent recovery in the long term.
OptionLover profile picture
It depends on how the principal adjusts with their 8K, they can make the mistake but CME and Canadian banks do not want too much margin exposure, hence,, it reduces their chance fir leverage.
I don't think you know what happened inside !
BiotechScout profile picture
It is indeed a negative mark on the books, but with the recent drop and now recovery mode. The rewards outweigh the risks at this point.
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